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Benedicte Gravrand, Opalesque Europe:

"Is alpha quantifiable in the absolute return space?" asked Alexander Ineichen his audience during Terrapinn's Hedge 2010 conference in London last month. The short answer was "not really."

Alpha is not really more than just a marketing term, he said. The value that hedge funds really add, according to the Zug, Switzerland-based founder of Ineichen Research and Management, is active risk management.

Hedge funds indeed seek an asymmetric return profile through active risk management rather than try and beat an arbitrary benchmark. It is risk management experience and skill that help survive accidents and avoid negative compounding. And accidents do happen; financial crises have occurred every 10 to 15 years since the Middle-Ages. Risk management is the discipline that deals with these "known unknowns".

The twenty-year period from 1980 to 1999, according to Ineichen, as far as financial cycles go, was an outlier, as indeed the equity market compounding rate was unusually high then; UK equities, for example, returned an average of 12 to 14%.

"This was essentially an accident," he explained, "as much lower returns are the norm. During this investor-friendly period, it was not necessarily obvious that risk management was required for the long-term investor; long-only and buy-and-hold strategies......................

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